The dollar fell against the euro to almost the weakest level in one month amid speculation the Federal Reserve will announce more monetary stimulus at the conclusion of today’s two-day policy meeting.
Demand for the 17-nation currency was bolstered as leaders at a Group of 20 meeting pledged to take “all necessary policy measures” to defend the currency union. A dozen of the 21 primary dealers who trade with the Fed expect some form of monetary easing. The yen weakened against all of its major counterparts.
“Markets have been pricing in has been some type of further easing from the Fed,” Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co., said in a telephone interview. “That’s kind of supported the short-covering rally we’ve seen, which has supported foreign currencies against the dollar.”
The dollar weakened 0.2 percent to $1.2706 per euro at 11:26 a.m. New York time, after reaching $1.2748 two days ago, the highest since May 22. The shared currency added 0.8 percent to 100.90 yen. The yen fell 0.6 percent to 79.41 per dollar.
The Fed will probably decide to expand Operation Twist beyond $400 billion to spur growth and buy protection against a deeper crisis in Europe, according to a Bloomberg News survey of economists.
Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. The current program ends this month.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed at 81.353 after falling as much as 0.2 percent.
“Any stimulus from the Fed is bearish for the U.S. dollar,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “We’re expecting something stimulatory, whether or not it’s in the form of an extension of Twist, or a little bit of QE,” he said referring to an earlier program of economy-boosting asset purchases known as quantitative easing.
Greek political leaders struck an agreement on a governing coalition that will seek relief from austerity measures tied to emergency loans, with New Democracy head Antonis Samaras set to be the prime minister.
The 17-nation currency rose against the dollar for a second day following the Greek election result and the country’s steps toward instating a new government. The euro’s 14-day relative strength index against the greenback surpassed the 50 level.
A breakthrough at this level suggested “widespread bullishness,” Eric Theoret, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital unit, wrote in a note to clients.
In its final statement, the G-20 backed Europe’s plans to consider a more integrated banking industry with common deposit insurance, a step that German Chancellor Angela Merkel has resisted. With attention shifting to a summit of European Union leaders in Brussels on June 28-29, the G-20 supported EU plans for closer economic union “that lead to sustainable borrowing costs.”
The euro is down from this year’s high of $1.3487 on Feb. 24, and has depreciated about 6.4 percent in the past 12 months against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Indexes.
The implied volatility for one-month euro-dollar options, which indicates expected swings in the underlying currencies, slipped to 10.63 percent. It reached a high of 13.29 percent last week. While that’s up from 8.25 percent in April, it’s below last year’s peak of 18.42 in September.
The JPMorgan G7 Volatility Index was at 10.13. It rose to 11.88 this month from 8.84 in April, the least since November 2007.
The euro is trading within a range of 98.55 yen and 100.93, and the currency may fall to 95.59 if it breaks below the lower level, Credit Suisse Group AG said in a note to clients, citing trading patterns.
A break below 98.55 would “pave the way for a selloff” taking it to interim support of 97.05 before possibly falling further to 95.59, according to analysts including David Sneddon, Credit Suisse’s London-based head of technical-analysis research. Support is an area on a price graph where orders to buy may be clustered.
The euro touched 95.60 yen on June 1, the lowest level since 2000, according to data compiled by Bloomberg.